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Premium brands welcome China’s renaissance
Asia investment

Premium brands welcome China’s renaissance

China is reviving and with it also premium brands sales. Major companies expect China to be the world’s top luxury market by 2025.
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3 MAR, 2023

By Gillian Diesen

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The Communist Party Congress tightened state control, cracking down on industries such as Internet commerce and private education, forcing big businesses to cut jobs. Added to this was President Xi Jinping's "zero Covid" policy, with up to half of the regions restricted from domestic and foreign travel. That demand was further depressed by the real estate crisis in the country, which represents around 70% of household assets. Even youth unemployment rose to 20%.

Despite this, premium brand companies have been able to maintain global sales. New markets, including younger and digital consumers, have contributed to this.

The fact is that Beijing's decision to abandon its draconian "zero Covid" policy is releasing pent-up demand, given excess savings of around 8.1% of disposable income and household bank deposits of almost 20% of GDP. It is a boon for premium brands, to the point that major companies again expect China to be the world's top luxury market by 2025. In addition, the government is introducing measures to support the property market and we expect growth in China to outpace that of developed economies this year. Even Chinese luxury brands rooted in the local culture can stand out, as the government is encouraging its citizens on wellness, physical exercise, and leisure, and Chinese consumers taking an interest, which increasingly involves specialized local premium brands.

In any case, one would expect true traditional luxury models to remain, represented by established brands, often European, that many members of the young Generation "Z" crave, already with access online.

Add to this that the travel and tourism industry is reviving, not only in China, where Beijing's decision to reverse its draconian "zero Covid" policy should boost regional tourism, especially in Thailand.

Indeed, despite high inflation and rising interest rates, a considerably more modest economic slowdown can be expected relative to previous recessions, which should help sustain leisure travel, although some niches will fare better. It should be borne in mind that there is still high demand built up by the pandemic constraints, with considerable savings and tight labor markets.

In fact, occupancy rates for major hotel chains are already above pre-pandemic levels, with only Asia still lagging. It is estimated that hotels have increased prices 18.5% in 2022 and will increase them again 8.2% in 2023, underscoring the strength of demand. U.S. travel to Europe already tripled the first half of 2022 from the same period a year earlier, although they remain at two-thirds of 2019 levels, indicating potential.

In addition, despite short-term risks associated with an economic slowdown, the outlook for business travel is positive. In the meetings and events industry, the recovery is unprecedented, and all signs point to 2023 of more meetings and events, attendees, and higher budgets and prices. Today, with a workforce dispersed, staff must be brought together for training and team building, culture strengthening, employee engagement, and values and goals communication. So event prices have already increased in all regions in most categories, for average cost per attendee in 2022 around 25% higher than in 2019 and another 7% increase likely in 2023.

Anyhow, one main long-term force affecting the travel industry is sustainability, with expected regenerative and socially responsible transportation. Rising fuel prices will motivate companies with travel brands to invest in cleaner technologies and fuels, including electric transportation. It is even possible to foresee that by the middle of this decade, vertical take-off and landing technologies will become commercially viable, as well as aircraft powered by batteries or hydrogen, some unmanned.

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